The benefits of producing a business plan/cash flow forecast

Last post: Jan 28, 2016

Whether you are a start up business or are a successful business that has been established for many years, a well-thought out and written business plan incorporating a cash flow forecast could prove invaluable in a number of ways some of which we cover below.

Whether you are a start up business or are
a successful business that has been established for many years, a well-thought
out and written business plan incorporating a cash flow forecast could prove
invaluable in a number of ways some of which we cover below.

Highlights
at which stage in its development the business currently is

This provides a useful summary of the
position that the business is currently in i.e. nature of business, how long trading,
customer base, level of borrowing and profitability.

Helps
plan for the future

A business plan provides a "road map" that lists
the various key areas that a business needs to focus on to become/continue to
be profitable and successful. For instance, where/what is the customer base, how
many new clients are required each year, what marketing activity is planned to
attract those customers, how do you retain existing customers, how many staff
are required over the next few years as the business grows, will new premises
be required to cope with increased growth, will additional plant and machinery
be required to cope with increased orders and what level of funding will be
required.

Assists
in monitoring performance

Targets should be set to help a business
achieve in those key areas. It details how to achieve each of those goals, when
each target is to be reached by and how much it will cost to meet those goals.

The targets that are set should be
realistic, measurable and regularly monitored. If a particular target stated in
the business plan is not met then analysis should be carried out to ascertain
why and action taken to either get back on course or adjust the original
target.

Aids
obtaining funding

A lender will usually require sight of a
business plan/cash flow forecast in order to consider a request for funding. A
comprehensive business plan should provide the lender with additional comfort
that the business is well run and therefore worthy of their support. A well-composed
business plan may even help in obtaining the borrowing at a lower rate of
interest than a business that has not put much thought into the content of such
documents.

Cash
flow forecast

It is important that the cash flow forecast
is reviewed regularly and compared with the business current account balance to
ensure that the finances are under control. This should avoid the possibility
of an unauthorized overdraft with the bank that could cause financial problems

Summary

Both new start up businesses and those that
have been trading for a number of years should complete a business plan/cash
flow forecast. When used correctly, they are informative documents acting as
permanent points of reference for business owners/directors that should aid the
success of a business.

Comment

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